Structure and Working of a Mutual Fund in India – Different Agencies and Their Roles
A mutual fund is a professionally managed investment vehicle in which money collected from different investors is pooled together and invested in securities such as equity shares, bonds, government securities, money market instruments and other permitted assets.
In India, the mutual fund industry operates through a regulated structure involving SEBI, Sponsors, Trustees, Asset Management Companies (AMCs), Custodians, Registrars & Transfer Agents (RTAs), Fund Accountants, Auditors, Distributors, Stock Exchanges and Banks.
Let's understand the complete structure, from the investor's money to the final investment.
1. Overall structure of the mutual fund industry
SEBI – Securities and Exchange Board of India -Regulator of the securities market and mutual fund industry
Sponsor- Establishes the mutual fund
Trustees- Protect investors' interests
AMC – Asset Management Company- Manages the mutual fund schemes and investments
Supporting Agencies
Custodian - Safekeeping of securities
RTA - Investor records and transactions
Fund Accountant - NAV and accounting
Auditor - Independent audit
Investment Portfolio - Equity • Debt • Government Securities • Money Market Instruments
Investment returns and portfolio value flow back to investors through NAV
INVESTORS
Individuals • HNIs • Corporates • Institutions
Simplified conceptual structure. Distributors, banks, exchanges and digital platforms facilitate investor transactions and are not all part of the AMC's management hierarchy.
2. Different agencies and their responsibilities
Agency Full name Main responsibility
SEBI Securities and Exchange Board of India Regulates mutual funds and protects investors
Sponsor Promoter of the Mutual Fund Establishes the mutual fund
Trustees Board of Trustees / Trustee Company Supervises AMC and safeguards unit-holder interests
AMC Asset Management Company Manages investments and mutual fund schemes
Fund Manager Investment Professional Makes investment decisions
Custodian Securities Custodian Safekeeping of scheme securities
RTA Registrar & Transfer Agent Maintains investor records and processes transactions
AMFI Association of Mutual Funds in India Industry association, distributor registration and industry development
NISM National Institute of Securities Markets Conducts certification examinations
KRA KYC Registration Agency Maintains centralised KYC records
Banks Collecting and payment banks Handles investment and redemption money
Stock Exchanges NSE / BSE Provides mutual fund transaction platforms
Depositories NSDL / CDSL Maintains securities and mutual fund units in demat form
Auditors Independent Audit Firms Audits scheme accounts and financial statements
Distributors MFDs, Banks, Brokers Help investors select and transact in mutual funds
Let's understand the important agencies individually.
A. Regulatory and supervisory agencies
1. SEBI – Securities and Exchange Board of India
Market regulator
Frames mutual fund regulations.
Grants relevant approvals and registrations.
Monitors AMC and mutual fund operations.
Prescribes disclosure and investor-protection requirements.
Takes regulatory action in case of violations.
2. AMFI – Association of Mutual Funds in India
Industry association
Promotes the development of the mutual fund industry.
Registers eligible mutual fund distributors and issues ARN.
Publishes mutual fund industry data.
Promotes investor awareness.
Issues industry guidelines and best practices.
Important: AMFI is not the market regulator. SEBI is the regulator.
3. NISM – National Institute of Securities Markets
Conducts NISM Series V-A Mutual Fund Distributors Certification Examination.
Provides securities-market education and certification.
Supports professional competency in the financial industry.
B. Main mutual fund establishment and management agencies
4. Sponsor
The sponsor is the promoter who establishes the mutual fund.
Responsibilities:
Initiates the formation of the mutual fund.
Establishes the mutual fund trust.
Appoints trustees.
Facilitates the setting up of the AMC, subject to applicable approvals.
5. Trustees
Trustees act as guardians of investors' interests.
Responsibilities:
Supervise the AMC.
Monitor scheme operations.
Ensure compliance with SEBI regulations.
Check whether investments are made according to scheme objectives.
Protect the interests of unit holders.
6. AMC – Asset Management Company
Investment management entity
This is the most important operational organisation from an investment-management perspective.
Responsibilities:
Launches mutual fund schemes after required approvals and processes.
Appoints fund managers and research analysts.
Collects and manages pooled investment money.
Invests according to the scheme's investment objective.
Manages portfolio risk and asset allocation.
Handles scheme operations and investor services.
Examples of AMCs:
HDFC Mutual Fund
ICICI Prudential Mutual Fund
SBI Mutual Fund
Nippon India Mutual Fund
Kotak Mahindra Mutual Fund
Axis Mutual Fund
Quant Mutual Fund
Mirae Asset Mutual Fund
C. Supporting operational agencies
7. Fund Manager
The fund manager works under the AMC.
Researches companies and securities.
Decides which stocks or bonds to buy and sell.
Manages portfolio allocation.
Monitors market and economic developments.
Works within the scheme's mandate and investment restrictions.
8. Custodian
The custodian is responsible for the safekeeping of securities purchased by the mutual fund.
For example, if an equity mutual fund purchases shares of Reliance Industries, the custodian is responsible for holding and maintaining the custody records of those securities.
9. RTA – Registrar and Transfer Agent
Two prominent RTAs in India are:
CAMS
KFin Technologies
Responsibilities:
Processes SIP registrations.
Processes purchase and redemption transactions.
Maintains investor folios.
Generates account statements.
Updates investor bank details and contact information.
Processes switch transactions.
Handles investor service requests.
An RTA may serve multiple AMCs. An AMC may also perform certain RTA functions in-house.
10. Banks and Payment Gateways
Collect investment money from investors.
Process SIP instalments and lump-sum payments.
Facilitate redemption payments.
Support fund-level cash management.
11. KRA – KYC Registration Agency
Examples include:
CAMS KRA
KFintech KRA
CVL KRA
NDML KRA
They maintain centralised KYC records and facilitate KYC verification and related services.
12. Auditors
Independent auditors examine scheme accounts and financial reporting to help ensure accuracy and compliance with applicable requirements.
3. How money actually moves in a mutual fund
This is the most important part for understanding the practical working of the industry.
Investor money flow
Investor Invests ₹10,000 through SIP or lump sum.
Distributor / Direct Platform -Facilitates the investment application and transaction.
Bank / Payment Gateway Processes the investor's payment.
AMC / Fund Operations Processes the transaction and allots units based on the applicable NAV.
Fund Manager Uses the scheme's available funds to purchase securities according to the investment objective.
Custodian Holds the purchased securities in custody.
RTA Maintains the investor's folio, unit balance and transaction records.
Investor Receives units and can track investment value through NAV.
Redemption flow
Investor submits a redemption request.
RTA / AMC processes the request and calculates applicable redemption proceeds.
Scheme's liquidity is arranged through available cash or sale of securities, as required.
Payment is transferred to the investor's registered bank account within the applicable timelines.
4. How does the AMC calculate NAV?
NAV means Net Asset Value. It represents the per-unit value of a mutual fund scheme.
Example:
Suppose a mutual fund scheme has: Particulars
Amount Total investment value ₹100 crore
Cash and other assets +₹5 crore
Total liabilities - ₹2 crore
Net assets ₹103 crore
Outstanding units 10 crore
NAV ₹10.30
The NAV is generally calculated for each business day according to applicable valuation and disclosure rules.
5. Other important agencies in the ecosystem
These agencies also play important roles in the mutual fund industry.
Agency Role
NSE Mutual fund transaction platform and market infrastructure
BSE Mutual fund transaction platform
NSDL Depository for securities and demat units
CDSL Depository for securities and demat units
CRISIL Ratings, research and analytical services
ICRA Credit ratings and financial research
Independent Valuation Agencies Support valuation of securities where applicable
AMCs' Scheme Auditors Audit individual scheme accounts
6. Actual working example – Investment of ₹10,000 through SIP
Let's assume an investor invests ₹10,000 every month in an equity mutual fund.
Illustrative SIP transaction Example only ₹10,000 Monthly SIP amount
Applicable NAV ₹50 Units allotted 200 After 1 year (illustrative)
Particulars Amount Monthly SIP ₹10,000
Total investment ₹1,20,000
Total units Depends on monthly NAV
Current portfolio value Depends on market value
The investor owns mutual fund units, not the individual stocks directly in their own name. The scheme owns the underlying portfolio assets.
7. Role of a Mutual Fund Distributor in this structure
A Mutual Fund Distributor (MFD) acts as an important link between the AMC and investor.
The distributor's responsibilities include:
Understanding the investor's financial goals.
Assessing investment horizon and risk profile.
Explaining suitable mutual fund categories and schemes.
Facilitating KYC and investment transactions.
Assisting with SIP and lump-sum investments.
Providing portfolio reviews and servicing support.
Helping investors understand market volatility and investment discipline.
For distribution, the applicable NISM certification and AMFI registration requirements must be fulfilled. Distributors should also follow applicable SEBI and AMFI rules.
8. Important distinction between SEBI, AMFI, AMC, RTA and MFD
Organisation Think of it as
SEBI Regulator
AMFI Industry association
Sponsor Promoter
Trustees Guardian
AMC Investment manager
Fund Manager Decision maker
Custodian Safe keeper of securities
RTA Investor record keeper
Bank Money transfer facilitator
MFD Investor facilitation and distribution partner
Investor Unit holder and beneficiary
9. Official reference material
For professional understanding and investor education, refer to:
END of BLOG
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Please read the scheme information and other related documents carefully before investing.
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